Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 5.60 percent that sells for $95.34 per share. If the par value is $100, what is the cost of the company's preferred stock

5.87%

Explanation:

The computation of the cost of preferred stock is shown below:

Cost of preferred stock = Annual dividend : Price of preferred stock per share

where,

Annual dividend is

= Coupon rate * par value of the share

= 5.60% * $100

= $5.6

And, the price of preferred stock per share is $95.34

So, the cost of the company preferred stock is

= $5.6 : $95.34

= 5.87%